Making a difference For Your Financial Future SCHEDULE A FREE CONSULTATION

How Long Does Bankruptcy Appear on a Credit Report?

Hunt Law Firm April 13, 2023

Stack of coins in descending order and depressed businessmanIt’s no secret that filing for bankruptcy is a major decision that carries with it both significant benefits and consequences. However, it’s often the best choice for those who are facing serious financial troubles and have been unable to resolve them by other means. One of the most pressing concerns individuals have is about their credit score and how to go about rebuilding their credit afterward. Specifically, they want to know, “How long does a bankruptcy stay on my credit report?” so they can plan for the future.  

To learn more about bankruptcy’s effect on credit scores and to speak with an experienced bankruptcy attorney, call Hunt Law Firm in DeSoto, Texas. Attorney Gwendolyn E. Hunt is also able to represent clients throughout the Dallas and Fort Worth areas. 

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is the most common type of bankruptcy for individuals who can’t meet their debt obligations. Chapter 7 is also called “liquidation” bankruptcy because the individual must first sell off (liquidate) any non-exempt assets and then use these proceeds to pay off creditors before the bankruptcy claim will be approved. Only after this is done will a judge approve the rest of the dischargeable debt to be wiped out.  

There are also certain income requirements you must meet to qualify for Chapter 7. Debtors must have an average monthly gross income that’s equal to or less than the median income of a same-size family in Texas. Because of this criteria, it often means that individuals won’t have to sell any assets (called a “no asset” case) and can instead move straight to discharging their debt. Note that only consumer debt can be discharged this way, such as credit cards, personal loans, medical bills, or past due rent and utilities. Debt like alimony, child support, and most back taxes will still be owed. 

When your bankruptcy filing does go through, you can expect it to stay on your credit report for up to ten years, but there are steps you can take to mitigate the negative effects. During this period, the bankruptcy will bring down your credit score and likely impact your ability to qualify for new loans. 

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is the other main option for individuals and is often referred to as “wage earner’s” bankruptcy. With this model, instead of discharging your debts from the beginning, you’ll work with the courts to set up a repayment plan that will be in place for three to five years. During this time you’ll be able to keep working, hold on to your assets, and make a regular monthly payment that’s dispersed among your creditors.  

At the end of this time, if you’ve stayed current on all your payments, your remaining dischargeable debt will be wiped out. Like Chapter 7, debts like alimony and child support cannot be discharged, but they can be included in your repayment plan to ensure you stay on top of these. 

After you complete a Chapter 13 filing, you can expect it to stay on your credit report for up to seven years.  

How Much Does a Bankruptcy Affect My Credit Score? 

Unfortunately, filing for bankruptcy can take a significant toll on your credit score. This will vary depending on the individual, but most people with scores in the 600s or 700s can expect their scores to drop by anywhere from 130 to 240 points. Those with lower scores (400 to 500) may actually see a boost in their score, but either way, your credit report will be flagged and you’ll be considered a risky borrower, which can make it extremely difficult to qualify for a loan or new credit card. However, it can also help you by getting rid of delinquent accounts and improving your debt-to-income ratio. 

What You Can Do to Help?

The best thing you can do to help regain financial stability is to start rebuilding your credit as soon as you can. One way to do this is by obtaining a secured credit card that requires you to post money on it before you can use it. For example, you can add $1,000 to it, then use it like a normal credit card. With its use and your regular payments, this will slowly start increasing your score.  

You can also help by thoroughly checking your credit report after the bankruptcy goes through to make sure that only applicable accounts were reported. Mistakes do occur, and if an account is incorrectly flagged as “included in bankruptcy,” it can cause your score to drop. Finally, once the time has expired on your filing, check your report again to make sure the bankruptcy was removed.  

Turn to Hunt Law Firm for Help

If you’re in the DeSoto, Texas, area and want to speak with an attorney about your options for declaring bankruptcy, reach out to Hunt Law Firm today